The British pound was set for its biggest daily drop against the euro in more than three months as concerns grew about the progress of Brexit negotiations.
Sentiment was also further sapped by manufacturing data that underscored the weak state of the British economy.
Traders bought sterling last week after the European Union’s chief Brexit negotiator, Michel Barnier appeared to strike a conciliatory note.
That raised hopes a Brexit breakthrough was imminent as Britain and the EU try to agree what a post-Brexit trade deal would look like.
However, developments on the British political front dashed those expectations after Prime Minister Theresa May’s former foreign secretary Boris Johnson said her Brexit strategy meant disaster for Britain.
The prospect that May’s government could fail to reach an agreement that would gain parliamentary approval at home, and that Britain could potentially crash out of the EU in March with no deal in place, has worried financial markets.
Markets clearly misunderstood Barnier’s comments last week and even in the light of today’s moves, investors are still under-pricing the risk of a hard Brexit.
Economic data provided no relief. British manufacturers had their weakest month in over two years and export orders suffered a rare decline in August, a survey showed.
Weak economic data and Brexit uncertainty basically is hurting the value of Sterling double hard.